Injured vs. Innocent Spouse, or neither??

[manyhappyreturns]

I have a client who is legally separated from her former husband, and they have not lived together since December of 2010. She filed MFJ for the 2010 tax year and the entire refund was applied to her former husband's school loan. This year she wants to file HOH but is afraid the refund will still go to the husband's school loan. It seems like neither Injured or Innocent Spouse address this particular situation, so I'm not sure what to do. A few years ago a woman came to me whose husband gambled away his pension, filed their joint tax return, then disappeared, leaving her with nothing except the kids and a $20,000 tax bill. The next year she filed HOH and her refund including over $3,000 EIC went to pay part of the back taxes. The difference between this situation and my current client's situation is that the $20,000 tax bill was a joint obligation, and my current client's former spouse (actually, they aren't legally divorced yet, but legally separated) owes on a student loan in his name only. Any ideas?

[Koss]

Refund

If you are certain that the only reason the refund was taken was to satisfy the husband's delinquent student loans...

And if your client meets all the criteria for Head of Household, even though she is legally married...

Then your client should be good to go.

The simple part:

Injured spouse is only applicable when the filing status is MFJ.

Innocent spouse is only applicable when the taxpayer is legally divorced. (There may be an arcane exception to this rule, but it's not applicable here.)

If your client files HOH, then she is filing a separate return, and the refund will not be applied to a debt that is only owed by her husband.

If there is a tax debt from a prior year return, and that return was MFJ, then she is legally liable for that debt, and the IRS will take the refund regardless of what the filing status is.

In rare cases, a spouse can be legally liable for her husband's student loans. That's probably not the case for your client. I have heard that in some cases, where both spouses have student loans, they have somehow consolidated the loans into a single account, in order to get a lower interest rate. The consolidation is achieved with a single promissory note, for the entire amount, with joint and several liability.

It's a terrible idea. Hopefully that's not applicable to your client.

To answer your original question: She is neither an injured nor an innocent spouse. Neither form is applicable.

The IRS should not take her refund on an HOH return if she is not liable for the delinquent debt.

Even if she somehow doesn't qualify for HOH, she can still file MFS, and they can't take the refund.

BMK

[ChEAr$]

What Koss said.

After all, are there really any "innocent" spouses? (grin

[manyhappyreturns]

Thank you so much! Yes, she qualifies to file HOH. It wouldn't do her any good to file MFS anyway, because her refund is basically EIC due to the fact that she has 2 kids at home and a low-paying part time job. The only reason she & hubby are separated is because she's fed up with having to support him too.

[taxea]

She can still file injured spouse for 2010 on an amended in an attempt to get her portion of the refund back.

[manyhappyreturns]

Good idea, taxea. I thought of that and will ask her if she wants to do that. If so, she'd need her hubby's signature on the 1040x, so she may just want to keep the past in the past. Thanks!

[Koss]

Retroactive Injured Spouse

Okay, wait a minute...

I agree with what Taxea said about filing an injured spouse claim for a prior year, after the refund has been taken.

But I thought that was a different client in the original post.

Either way, Taxea has a good point. But it's not an amended return, and it doesn't require the spouse's signature.

The injured spouse form is used on an MFJ return to request that the IRS mathematically split the refund between the spouses, based on income, deductions, withholding, and other variables, and then take only that portion of the refund that belongs to the spouse who owes the delinquent student loan.

When an injured spouse form works properly, the IRS divides the refund, sends the husband's portion to the Department of Education, and sends the wife her portion. And all this happens on an MFJ return.

The injured spouse form can be filed after the fact, to recover the wife's portion of the refund. It happens all the time, because especially with newlyweds, the wife sometimes doesn't know that the entire refund will be taken when the return is filed.

It's not an amended return. It doesn't change the filing status, and it doesn't change the tax liability. It doesn't even change the amount of the refund. It only changes what the IRS does with the refund.

The injured spouse can submit the form on her own. Only her signature is required.

If you're wondering, yes, the IRS actually pulls part of the refund back from the Department of Education. DOE then debits the guy's student loan account.

Takes three to six months.

Worth the wait.

BMK

[manyhappyreturns]

Oh, yeah, that's right. I'll see if my client wants to do that.

[taxea]

Okay, wait a minute...

I agree with what Taxea said about filing an injured spouse claim for a prior year, after the refund has been taken.

But I thought that was a different client in the original post.

Either way, Taxea has a good point. But it's not an amended return, and it doesn't require the spouse's signature.

The injured spouse form is used on an MFJ return to request that the IRS mathematically split the refund between the spouses, based on income, deductions, withholding, and other variables, and then take only that portion of the refund that belongs to the spouse who owes the delinquent student loan.

When an injured spouse form works properly, the IRS divides the refund, sends the husband's portion to the Department of Education, and sends the wife her portion. And all this happens on an MFJ return.

The injured spouse form can be filed after the fact, to recover the wife's portion of the refund. It happens all the time, because especially with newlyweds, the wife sometimes doesn't know that the entire refund will be taken when the return is filed.

It's not an amended return. It doesn't change the filing status, and it doesn't change the tax liability. It doesn't even change the amount of the refund. It only changes what the IRS does with the refund.

The injured spouse can submit the form on her own. Only her signature is required.

If you're wondering, yes, the IRS actually pulls part of the refund back from the Department of Education. DOE then debits the guy's student loan account.

Takes three to six months.

Worth the wait.

BMK

Sorry...my bad but I do believe the other spouse does have to sign it and I think this rule is ridiculous. What if the two aren't getting along....what happens if the TP files the form without getting a signature from the other spouse....is "refused" allowed?

[Koss]

Signature

The current version of Form 8379 only has a space for the signature of the injured spouse.

http://www.irs.gov/pub/irs-pdf/f8379.pdf

If the form is filed with the original tax return, it does not have to be signed at all.

If the form is filed by itself after the fact, only the signature of the injured spouse is required.

The tax return is MFJ, and of course it must be signed by both spouses.

The injured spouse does not need permission, or agreement, from the deadbeat spouse to request that the IRS give her her share of the refund, instead of applying to the her spouse's debt. It's her refund. The whole concept is that the deadbeat spouse has no right to her share of the refund, so it shouldn't be applied to the debt.

The check comes made out to the injured spouse--not both.

BMK

[New York Enrolled Agent]

The simple part:

Innocent spouse is only applicable when the taxpayer is legally divorced. (There may be an arcane exception to this rule, but it's not applicable here.)

I must disagree with this. Innocent spouse relief under §6015(b) and §6015(f) does not require that spouses be divorced and those sections certainly do not constitute arcane exceptions. The apportionment of liability under §6015(c) likewise does not require a divorce. The taxpayers must either be divorced, legally separated or have not lived together for the 12 months prior to the request for relief.